A feckless Team Biden has set America up for a new round of 1970s-style stagflation. The similarities between then and now are eerie.
Seventies stagflation resulted from profligate fiscal policy, politicized monetary policy and food and energy shocks. President Lyndon Johnson’s guns-and-butter decision to simultaneously finance both the Vietnam War and his Great Society programs triggered a wave of demand-pull inflation.
After President Richard Nixon appointed Arthur Burns as Federal Reserve chair, Burns cranked up the Fed printing press in support of Nixon’s re-election efforts. The resulting currency debasement forced Nixon to abandon the US dollar standard, the linchpin of the global monetary system; the dollar cratered, driving up import prices and further stoking inflation.
suffered two crippling supply-side crises. Food prices soared as a result of bad weather, Soviet grain purchases and cropland mismanagement. Energy prices skyrocketed, thanks to the Arab oil embargo. When President Jimmy Carter ran against Ronald Reagan for re-election, America’s “misery index” — the unemployment rate plus the inflation rate — had breached 20 percent.
Today, fiscal policy is more profligate. In 1979, federal outlays were a bit over 19 percent of gross domestic product. According to the latest Congressional Budget Office numbers, meanwhile, federal outlays will be 30.6 percent in 2021. And the proposed expenditures now on the table for a $3.5 trillion red-ink-palooza and faux $1 trillion “infrastructure” package threaten to sustain that profligacy going forward.
At the Federal Reserve, Chairman Jerome Powell has been committed to accommodating just about any level of fiscal madness progressive Democrats can jam through. As he lobbies for reappointment, the Fed printing presses are spinning so fast, they would put old Arthur Burns to shame.
On the external shock front, the pandemic has struck at three main pillars of urban prosperity: high-rise office buildings, mass transit and entertainment districts. Before the pandemic hit, office occupancy rates in core US metropolitan areas like New York and Chicago were well above 90 percent. Today, those figures range as low as 30 percent; much of white-collar America has learned to work remotely.
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